The problems Kohl's faces are far more serious than "meme stock" trading.

In mid-July, Kohl's attracted the attention of "meme stock" traders due to a large number of shorting stocks, and they briefly flooded into the market, pushing the stock price up nearly 50% at one point. However, this new attention does not address Kohl's long-standing issues, and investors should not mistake this rebound as a sign of renewed optimism about the department store's business.

According to data from S&P Global Market Intelligence, as of July 29, nearly 40% of Kohl's 112 million shares outstanding were being shorted, making it the stock with the highest shorting ratio in the United States. This high shorting ratio mainly reflects investors' concerns about the company's business—Kohl's has seen declining sales and profitability for several years, and there has been turmoil in the management.

Short sellers borrow stocks to sell, expecting to buy them back later at a lower price. Kohl's stock price has dropped about 70% since 2021, with a recent trading price of $10.70, but bears are still betting that its stock price will decline further. Meme stock traders often target heavily shorted stocks, pushing up the stock price to "squeeze" short sellers, forcing them to cover their positions to cut losses.

Kohl's is headquartered in Menomonee Falls, Wisconsin, operating over 1,100 mid-range stores in 49 states, as well as the Kohls.com e-commerce business. Like most mid-tier retailers, especially department stores, the company has struggled since the COVID-19 pandemic. With online shopping becoming increasingly popular, consumer spending has shifted from physical stores to online, putting pressure on Kohl's business model.

In the fiscal year ending February 1, Kohl's saw a 48% decline in profits, with earnings per share at $1.50, and revenue fell 7% to $15.4 billion. According to FactSet data, analysts expect the company's earnings per share to be $0.43 this year, with revenue projected at $14.6 billion. Comparable store sales have declined for 13 consecutive quarters, and both operating profit margins and free cash flow continue to decrease.

The free cash flow for fiscal year 2024 fell to $104 million, down from $591 million the previous year. The adjusted operating profit margin for the fiscal year was 3.1%, compared to 7.7% in 2015.

Kohl's cut its quarterly dividend from $0.50 per share to $0.125 in March, aiming to save cash and pay down debt. The company's current dividend yield is approximately 4.2%.

Kohl's operational difficulties have been exacerbated by frequent changes in management. Over the past decade, the company has changed its CEO five times, with each CEO having their own vision and transformation plan, which in many cases has overturned the changes made by the previous leadership team.

Former CEO Tom Kingsbury joined the Kohl's board in 2021 and has served as CEO since December 2022 until January 2025. Under his leadership, Kohl's shifted to a more discount retail-oriented business model, including cutting private labels and Kohl's Cash coupons, and eliminating popular product categories like jewelry. Chuck Grom, an analyst at Gordon Haskett, stated that these measures effectively amounted to "abandoning" the brand's core customers, and he has a "reduce" rating on the company's stock.

Kingsbury was unable to be reached for comment. A female spokesperson for Kohl's declined to allow company executives to be interviewed, citing that the company is in a quiet period ahead of its upcoming earnings report.

Ashley Buchanan, who succeeded as CEO, began to gradually roll back these measures. However, a survey found that he was fired in May for violating Kohl's conflict of interest policy by pushing the company to make a deal with a vendor with whom he had a personal relationship. Interim CEO Michael Bender, a former Walmart executive who joined Kohl's board in 2019, is still continuing Buchanan's business strategies. However, analysts say that the latest efforts, which mainly rely on proprietary brand products and the return of old product lines, may not be enough to attract more customers into stores or to help Kohl's regain lost market share.

"From the perspective of shorting positions, the market does not believe that this shift can be achieved," Grom said, "and I don't think it can be achieved either. It's really difficult."

Grom stated that historically, once retailers lose loyal customers, it is almost impossible to win them back. Like other department stores, Kohl's is also striving to attract younger consumers who prefer shopping at specialty stores or online.

Despite widespread skepticism, Kohl's still has a number of supporters who believe the company is undervalued. Some bullish investors are betting that the company's operations will improve, while others believe that Kohl's real estate value is not reflected in its $1.3 billion market cap.

Morningstar analyst David Swartz acknowledged that Kohl's faces business challenges and management turnover issues, but he believes the company's fair stock price should be $40 per share, which implies an upside of about 260% from current levels. He stated that Kohl's stock is "severely undervalued" and added that Kohl's current profit margins are very low, with significant room for improvement in the future, which will help boost cash flow.

Just a few years ago, Kohl's market value was much higher than it is today, attracting a wave of acquisition offers. In 2022, Franchise Group, the former parent company of The Vitamin Shoppe, offered up to $60 per share to acquire Kohl's but later lowered the bid to $53 per share due to macroeconomic factors. Kohl's board rejected this offer, and its stock price subsequently fell.

Department stores like Kohl's and Macy's have become quite attractive acquisition targets due to their low valuations and substantial real estate holdings. As of February 1, Kohl's owns 405 stores and the majority of its distribution centers. Swartz noted that the value of these properties might even exceed his estimate of the company's enterprise value — which he set at $3.1 billion.

Kohl's real estate assets initially sparked Caleb Habert's interest in the company. Habert is a small business owner and investor who shares his views on Kohl's on the social media platform Reddit. He believes that based solely on these real estate assets, the company's shares should be worth at least $35 each. He bought Kohl's stock in April, hoping that a buyout offer or the involvement of activist investors could boost the stock price. Although he initially did not include the "meme stock" phenomenon and shorting logic in his investment strategy, he said that the emergence of this phenomenon is good news for him.

"I see the shorting market as a great financial catalyst, but to be honest, I just feel that this way, the stock price can reach my target price faster than our original slow posting bullishly and expecting it to gradually pump up." he said.

Hubert also realized that the gains driven by meme stocks may be short-lived. In fact, the stock price of Kohl's has declined by more than 20% since the peak of meme stocks in mid-July. Stocks driven by retail traders and social media discussions usually experience high volatility, and the excitement of chasing rises comes with risks.

The risks facing Kohl's may not be as significant as indicated by its high shorting positions. According to FactSet data, the company currently has a net debt of $7.2 billion, but has recently completed debt refinancing to repay its current maturing debts, with the next debt not maturing until 2029, providing management with financial flexibility and time to improve the business.

As for the stock price, meme stock traders may refocus on Kohl's, attempting to further squeeze the shorting. However, whether the stock price can continue to rise depends crucially on whether the management can unlock the company's value, whether through asset sales, other strategic measures, or a turnaround of the business. Currently, the outlook remains uncertain.